Posts

CRC Annual Report Publication: Key Results for Phase 2

The CRC Energy Efficiency Scheme Annual Report Publication (ARP) covering the first 2 compliance years of Phase 2 has been published today.

CRC Annual Report: key results

Key results for Phase 2 to the end of the 2015/16 compliance year show:

  • Total revenue through carbon allowance purchases in 2015/16 increased 18.2% to £902,957,350 compared to 2014/15
  • Total energy use reported for 2015/16 was 3.2% lower than 2014/15: equivalent to 3,558,208MWh
  • Total reported emissions for 2015/16 were 9.7% lower than 2014/15: equivalent to 4,415,594tCO2
  • 1,858 participants registered for Phase 2; this is a small reduction in the number of participants when compared with the final year of Phase 1

The key results present some very serious numbers, including a near £1bn revenue stream for the government and some notable improvements in energy usage and carbon impact.

3.2% reduction in annual energy usage

The CRC is due to be scrapped following completion of the 2019 compliance year (in July 2019). The Scheme has been widely criticised by Participants as overly burdensome and costly to administer.  Others will argue that the benefit of identifying and reporting annual emissions has brought attention to energy efficiency improvements, as demonstrated through the 3.2% reduction in reported energy use.

Irrespective of what happens going forwards, monitoring will continue to be essential to ensure understanding of energy performance and to help track energy efficiency. Our proprietary software, SIERA, is a market leading, innovative and easy-to-use environmental management software system. SIERA is already managing billions of pounds worth of real estate, and is being rapidly adopted by large organisations across the globe.


Find out how SIERA can transform your data capture and reporting by calling our experts today.


 

Science-Based Targets: Considerations for the Commercial Real Estate Sector

Interest in Science-Based Targets (SBTs) has grown significantly following last year’s Conference of the Parties (COP21) in Paris (which led to a climate change agreement signed by 195 member states) and more recently at COP22 in Marrakech. For a general overview, take a look at Part 1 for a short introduction to Science-Based Targets.

The importance of greenhouse gas emission reductions is expected to have varying implications across different industries. For the commercial real estate sector, there are several issues to consider.

Science-Based Targets: Categorising Emissions

SBT platforms require the input of emissions data, which is then analysed to generate emission reduction targets over time. Greenhouse gas emissions are caused by multiple organisational activities. One way to describe greenhouse gas emissions is through Scopes 1, 2 and 3 according to the GHG Protocol as shown in Figure 1.

Science-Based Targets: Discussions for Commercial Real Estate: Blog Image 1

Figure 1. Scopes and Emission Breakdown (Source: GHG Protocol, 2011)

Science-Based Targets: Discussions for Commercial Real Estate: Blog Image 2

Data on emissions from sources is collected, entered into a model, and then targets for each emission scope are set based on the business’ contribution to the overall 2°C reduction plan (agreed at COP21). This relies on the ability to measure and monitor accurately the different categories of greenhouse gas emissions for an organisation’s activities (Figure 1 – GHG Protocol, 2011). The Better Buildings Partnership (2016) recently made this observation, but specifically mentioned the landlord-tenant split and allocation of emissions as the key challenges. The problem for commercial real estate firms is who is made accountable for the emissions– the landlord, the tenant or both?

[clickToTweet tweet=”The problem for #CRE firms is who is accountable for #emissions – the landlord, the tenant or both?” quote=”The problem for commercial real estate firms is who is made accountable for the emissions– the landlord, the tenant or both?”]

Different Approaches

We have been asked by clients to explain how Science-Based Targets actually work in practice. This is a good question. At present, there are many approaches available. Examples include: the Sectoral Decarbonisation Approach (SDA); The Absolute Emissions Compression; The 3% Solution; Climate Stabilisation Intensity Targets (CSI); Corporate Finance Approach to Climate-Stabilising Targets (C-FACT); GHG Emissions per Value Added (GEVA) and Context-based Carbon Metrics (CSO). All have different approaches.

[clickToTweet tweet=”How do #sciencebasedtargets actually work in practice? This blog explores the answer…” quote=”How do Science-Based Targets actually work in practice?”]

The Sectoral Decarbonisation Approach (SDA) is currently being considered alongside other approaches within commercial real estate. It was originally developed by the Carbon Disclosure Project, World Resources Institute and WWF. Here, we focus on this approach, but in the future, we will consider other methodologies.

How does SDA work?

In short, this method splits up the carbon reduction pathway to different kinds of sectors and activities and is based on the establishment of business-level emission trajectories that support the 2°C global warming threshold, developed by the International Energy Agency, which limits the total remaining cumulative energy-related CO2 emissions between 2015 and 2100 to 1,000 GtCO2 (IEA, 2014).

The step-by-step approach for setting emissions targets

The steps below provide a summary of how SDA targets are set (this is intended to be an overview, please contact us for more information).

  1. Identify emissions by converting energy use into CO2e
  2. Categorize by Activity Type or Scope
  3. Produce a forecast of business-as-usual for each activity type – what will emissions look like if the business continues without intervention?
  4. Produce a forecast for each activity type based on the emission reduction required to align with the global 2°C carbon reduction target. This becomes your SBT
  5. Compare Business-as-Usual vs. Science-Based Target for the different activities
  6. Combine activity-level analysis to identify an overall target
  7. Track progress over time, engage and review
Science-Based Targets: Discussions for Commercial Real Estate: Blog Image 3

Figure 2. Sectoral Decarbonisation Approach Schematic. Source: Science-Based Targets http://sciencebasedtargets.org/

 

Modelling Methodologies – Some Considerations

Emissions data is not the only input that goes into the model – especially with regard to real estate. There are other things to consider:

  • Scale: What do the emissions cover and what is the timescale – building level or portfolio level?
  • Geography and Location: Where does it apply?
  • Activities: What kinds of activities occur in the building? What activity levels are we expecting to see in the building? What are the occupancy levels like? What does the electricity-use look like?
  • Trends and Changes Over Time: What are the consumption trends and how do we see this changing in the future i.e. rates of change?
  • The Grid and Energy Procurement: Should carbon emissions from the grid be factored into the model? How are regional variations in the make-up of the grid and type of energy procurement taken into account in the emission scenarios?

On the whole, there is the question of what to include or exclude from the model. There is a risk of data over-refinements and normalisation, which could lead to an erroneous not-so-Science-Based result, which could be meaningless as a strategy!

Data Accuracies: Measurement and Monitoring

Target-Setting begins with data. If the data was poor at the outset, it cannot be considered to be a true reflection of what is happening in reality and as a result, any target would be inaccurate. SBTs are only scientific in their alignment to decarbonisation pathways which lead to a limit of 2°C global surface temperature increase, but it is wrong to believe that SBTs can act as the silver-bullet approach to achieve cost-savings and greenhouse gas emission reductions directly.

[clickToTweet tweet=”It is wrong to believe that #sciencebasedtargets can act as a silver-bullet approach…” quote=”It is wrong to believe that SBTs can act as the silver-bullet approach to achieve cost-savings and greenhouse gas emission reductions directly.”]

Another issue is how to set the baseline for SBTs. Of course, the scale and extent of data matters in this case, especially with the issues of measurement, monitoring and completeness of greenhouse gas emissions data at the building and portfolio level.

Concluding Remarks

Setting SBTs has the potential to convey a message and a common goal; but there is a need to link to the bigger picture.

Other factors should be considered alongside SBTs for maximizing the performance of portfolios through achieving energy and cost-saving opportunities. The setting of SBTs as outlined above does not consider opportunity for improvement. SBTs should be used as the initial framework and its design should be informed by data and sustainability management strategies, as well as the climate science. Performance must also be tracked over time to assess alignment to the target.

In the future, SBTs are expected to be a popular area for development, but for now, take-up is still slow in the commercial real estate industry.


What next? It is clear that there is no one-size-fits-all approach, if you identify any issues on sustainability and data management strategies that you would like to talk to us more about, please get in touch.



Further reading:

Why MEES is Changing Behaviour Two Years Ahead of the Compliance Date

The Minimum Energy Efficiency Standards (MEES) regulations will make it unlawful from April 2018 to let buildings in England and Wales which do not achieve a minimum Energy Performance Certificate (EPC) rating of E. This will initially apply to new lettings and renewals only, but from 2023 will apply to all existing leases as well.

John Alker, Director of Policy and Communications at the UKGBC stated that MEES is “The single most significant piece of legislation to affect our existing building stock in a generation”. I would certainly agree with this on a number of levels.

 

But doesn’t MEES have its flaws?

YES!

Firstly, the minimum standard is based on an EPC rating but as we know, EPCs are renowned for their lack of correlation to actual energy performance and that, as a commoditised service, quality diminished significantly putting into question the accuracy and usefulness of many EPCs.  Note that the Government is aware of this issue and has entered into a consultation process designed to improve quality assurance of EPC assessments.

Secondly, EPC calculations are linked to building regulations, so as regulations get tougher, so does the ability to achieve a decent rating making MEES a moving target. Many have suggested that EPCs produced pre 2011, if re-modelled now, could be up to two ratings lower. If correct, this could potentially see in excess of 30% of building stock, at risk to 2018 regulations.

However, this is not what we are experiencing, primarily due to the poor quality of many existing EPCs. As an example, EVORA recently re-evaluated shopping centre units with an EPC ratings E – G, where the rental value of these units exceeded 75% of the total ERV of the scheme. The original EPCs were of poor quality, as shown through the use of defaults. By completing accurate EPCs, EVORA was able to secure at least a D rating and therefore mitigating MEES risks for the next 10 years.

It is also not yet clear what the future trajectory will be for the minimum standard, although it is possible that this will be raised come 2023. This makes refurbishment planning challenging for landlords, who generally work on ten year cycles.

Finally, there are a number of exemptions, not least the requirement to have the consent all of tenants, which is surely a get out of jail free card for any landlord.

MEES and Behavioural Change

Despite these flaws and challenges we are seeing a significant change in behaviour well in advance of the 2018 compliance date. This shouldn’t be a surprise. MEES has the real potential to adversely impact many key value drivers including occupancy, rental growth, liquidity, cost of finance and yield on sale.

 

Greater Rigour Required

As such, it is focusing minds to ensure EPCs are carried out professionally and with rigour, whilst taking steps to understand portfolio risk supported by an appropriate strategy to mitigate.

As an example, more sophisticated energy modelling is being undertaken using Dynamic Simulation software packages to ensure the accuracy of EPCs and to better understand the opportunities to improve both energy performance and the EPC rating. We are currently supporting Hines on a major refurbishment in Canary Wharf, providing energy simulation modelling to ensure the design intent improves both the energy efficiency of the building as well as the EPC rating.

 

Understanding your MEES Risk

In addition, we are regularly using sophisticated sustainability management software such as SIERA on behalf of our clients, to analyse EPC ratings, lease events and ERVs together to understand and profile MEES risk.

 

SIERA Infographic 1 JPG

 

Collaboration is going to be Essential

Ironically, rather than being a get out of jail free card, lack of consent by the occupiers, possibly due to business interruption issues, could impact on asset management plans to improve the overall EPC rating to ensure future marketability and to prevent possible price chipping on sale. This is also an issue for FRI assets where there is no legal right to gain access, but improvements may be necessary to achieve a minimum rating, prior to lease expiry to enable the property to be marketed to minimise the risk of void periods. These issues will drive the need for greater collaboration between landlord and tenant.

 

Improvement vs repairing obligations and what about dilapidations…?

Collaboration will also be key if the landlord intends to replace M&E equipment with more energy efficient kit, ahead of the end of its useful life, and is seeking the tenants to share in the costs or to recover fully through the service charge. The cost benefits to the tenants will need to be clearly articulated to get their engagement.

Staying on the theme of replacing kit, this is likely to have an impact on dilapidations where the landlord may require more energy efficient equipment to meet MEES regulations but the issue of improvement vs repairing obligations will arise. Again, collaboration and forward discussions will be key.

 

New lease terms?

New lease terms (notice my omission of ‘green’ which generally makes tenants and letting agents run a mile) could become the norm, specifically to bar alterations that adversely affect an EPC rating. But policing such terms will be a challenge.  Does this, for example, mean that every planned tenant fit-out or even minor alteration, has to be fully modelled to assess the impact on the EPC rating – possibly.

There are many other issues and challenges associated with the impending MEES legislation and whilst it is far from perfect it offers an opportunity to improve the energy efficiency and resilience of your assets and engage in long term communication and collaboration with your tenants. Surely that can’t be a bad thing!

 

How can EVORA support you?

EVORA can support you in understanding the upcoming MEES regulations, help you profile your MEES risk using our sustainability management software, SIERA and provide professional support in delivering and improving the EPC ratings for your assets.

EVORA is participating in a select group to provide industry guidance to DECC on the future of MEES regulations.

 

For further information or guidance on MEES please contact Ed Gabbitas: egabbitas@evoraglobal.com or 07557 529 106

 


Follow us on LinkedIn:


EU Referendum and the Environment: The Final Few Days

On Thursday the 23rd of June, the UK will decide on its membership of the European Union. Thus far, it has been a closely fought debate with arguments presented by the Brexit and Remain campaigns. One key discussion point is the future of the legislative landscape for the environmental sector. This touches on the built environment and wildlife, as well as climate change targets. On the whole, there is consensus that voters lacked information throughout the period leading up to the referendum to take sustainability and the environmental issues into account.

Drawing on a survey of key professionals within the industry, the latest webinar held by the Institute of Environmental Management and Assessment (IEMA) suggested that:

  • Sustainability professionals thought the EU provides greater stability for environmental policy;
  • The UK is a leader on environmental and climate change policy;
  • The EU presents opportunities for the circular economy and fosters collaboration

In a similar way, the Institute of European Environmental Policy (IEEP) concluded in its latest report, “Potential Policy and Environmental Implications for the UK of a departure from the EU” that the UK’s environmental policy has been partly influenced by its EU membership. The IEEP argued that Brexit would trigger uncertainty unless the UK had alternatives in place. Going forward, the UK will need to review its environmental policy and significant transformations are set to take place.

The legislative landscape will be crucial to spur investment within the industry. In relation to real estate, links between property value and sustainability performance have already been established and this realisation will be further supported through environmental legislation. The UK Green Building Council (UK-GBC) has recently commented on the possible impacts of the outcome of the EU referendum, with those requirements linked to the EU Energy Performance of Buildings Directive (EPBD) expected to be affected the most. This includes the Display Energy Certificates (DECs) and the Energy Savings Opportunity Scheme, which are linked to the Energy Efficiency Directive (EED).

What is most certain are the unknown consequences of the EU referendum. Environmental and climate change consequences for the built environment and relevant legislation will be key areas of change.

Burns et al (2016) presents a summary of the scenarios and uncertainty levels. It is clear that the leave scenario presents the greatest uncertainty, with the potential of key transformations in the UK’s environmental policy. It seems that sustainability professionals must await on the side-lines as the debate draws to a close.

 

Table 1 The EU Referendum and the UK Environment (Burns et al, 2016)

EU Ref

 

Whatever the outcome, specific legislation within the UK, such as the Minimum Energy Efficiency Standard (MEES) coupled with the potential of a reformed legislative landscape means that all businesses operating within the built environment must be prepared for all eventualities. Sustainability and productivity within the built environment are valued globally not least in the business sense, but on a social level as well.

As for EVORA, regardless of the outcome, we are well positioned to navigate our clients through the post-EU referendum environment. With offices in the UK and Europe and a depth of knowledge within the industry, we will continue to help our clients manage their risks and realise the business case for sustainability.

If you have any questions or would like to discuss any sustainability issues, please contact our experts today, who will be happy to advise you on the best course of action.

 

Links:

http://www.iema.net/event-reports/2016/06/16/the-environment-and-the-eu-referendum/

http://www.ieep.eu/assets/2000/IEEP_Brexit_2016.pdf

http://ukandeu.ac.uk/wp-content/uploads/2016/04/Executive-summary-EU-referendum-UK-environment.pdf

Burns, C., A. Jordan, V. Gravey, N. Berny, S. Bulmer, N. Carter, R. Cowell, J. Dutton, B. Moore S. Oberthür, S. Owens, T. Rayner, J. Scott and B. Stewart (2016) The EU Referendum and the UK Environment: An Expert Review. How has EU membership affected the UK and what might change in the event of a vote to Remain or Leave? Executive Summary

http://www.ukgbc.org/news/uk-gbc-comment-eu-referendum

 

(Photo: Rock Cohen, Flickr Creative Commons)

 


Follow us on LinkedIn:


Budget 2016: Changes to the UK Government Energy Efficiency Strategy

Significant changes to the Government’s energy efficiency strategy were announced in today’s budget (16 March 2016).  Key points are summarised below:

  • The Carbon Reduction Commitment (CRC) energy efficiency scheme will be scrapped at the end of the 2018-19 compliance year (the end of Phase 2). Obligated businesses will be required to surrender allowances for the final time in October 2019.
  • Lost revenue will be recovered through an increase in the Climate Change Levy (CCL).  This will come into effect from 1 April 2019.  This is designed to cover the cost of CRC abolition (although 2019 appears to be a bumper year for the Government – with increased CCL rates and a final CRC payment).
  • CCL rates and CRC allowance prices will increase in line with RPI annually until 2018-19.
  • The CCL discount for sectors with Climate Change Agreements will be increased to cover increases in CCL main rates.
  • The Government will retain existing eligibility criteria for Climate Change Agreement schemes until at least 2023.
  • The main rates of CCL for different fuel types will be rebalanced to reflect recent data on the fuel mix used in electricity generation. In the longer term, the Government intends to rebalance rates to deliver greater energy efficiency savings and reach a 1:1 ratio of gas and electricity rates by 2025.
  • Finally, the Government will consult later in 2016 on creation of a simplified energy and carbon reporting framework planned for introduction by April 2019.

Please contact Paul Sutcliffe at EVORA for more information (psutcliffe@evoraglobal.com)

Pre-Budget: Rethinking the Energy Efficiency Taxation Landscape

With the energy efficiency taxation review just around the corner, it is expected that the CRC Energy Efficiency Scheme will be scrapped or at least changed significantly.  Below, we make three key predictions:

What are the key predictions for the upcoming budget review?

  1. A simpler energy efficiency taxation landscape: A single new tax based on the climate change levy and a single reporting framework
  2. Scrapping of the CRC Scheme
  3. Further developments based on ESOS supported by an incentivisation scheme to drive the implementation of improvement measures.

Moving away from the older policy environment, the translation of theory to practice will present new opportunities to utilise ESOS to spur the uptake of energy efficiency measures. Following on from our reflections on ESOS, it makes sense for businesses to develop strategies to address energy regulations in a coordinated fashion and to reap the benefits of a combined approach. A good example of this is having a combined approach to ESOS and MEES, where meeting minimum energy efficiency requirement aligns with the broader achievement of reducing energy costs in the building.

Please stay in tune for the budget announcement on the 16th of March 2016 and our post-budget review.

Links:

Reforming the business energy efficiency tax landscape

http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2015/11/Consultation_reforming_the_business_energy_efficiency_tax_landscape1.pdf

http://uk.practicallaw.com/3-623-4911?source=rss#

 

 

Reflecting on ESOS: The Next Steps

Going forward, what are the prospects for ESOS? EVORA highlights the next steps for the scheme.

A Coordinated compliance and improvement approach?

EVORA recommend that clients should consider the establishment of a collective approach to address all regulatory risks and opportunities. It makes sense for example, for real estate businesses to develop a strategy addressing both ESOS and the Minimum Energy Efficiency Standards (MEES).

ESOS: a burden or an opportunity for businesses?

On the whole, we believe that businesses have found the compliance process more challenging than regulators anticipated. ESOS is new and businesses will certainly feel that they had a short period of time in which to prepare. Nevertheless, EVORA is already seeing evidence that assessment results are being incorporated into energy action plans. Overtime, ESOS has the ability to deliver the energy savings the UK industry needs. However, ESOS needs to form part of a structured and stable energy policy framework.

ESOS and ISO 50001

In the latest round of ESOS, only 0.9% of businesses chose ISO 50001 as a route to compliance. EVORA believes that, over time, an energy management system approach will help deliver the best results. However, the ISO 50001 approach is also the most time and resource intensive. Nevertheless we believe that, ISO 50001 will grow in popularity over time. The low level of initial uptake will have been restricted by the long time it takes to gain certification and the lack of available certification assessors.

For more information, Paul Sutcliffe will be speaking at the UK Green Building Council (UK-GBC) ESOS Showcase Event in London on the 15th of March. The link to the event can be found on the website: http://www.ukgbc.org/event/esos-showcase

Stay in tune for further updates on the energy efficiency taxation review budget to be announced soon!

Reflecting on ESOS: The EVORA Experience

Over the last six months, EVORA has supported a broad range of clients to meet ESOS requirements. Through our support programmes we have engaged with 27 companies from Real Estate to a Big Six energy provider.

Energy spend assessed equated to £55m and saving opportunities of £2.8m (5.2%)  where identified (this equated to 27,000 MWh per annum).

kd1

 

 

kd3

ESOS routes to compliance

It was also interesting to explore the ESOS routes to compliance. From an analysis of all ESOS participants and responses to the notification questions (excluding personal data) across the UK and a selection of industry sectors, 65% of the notifications were made during or after December 2015.

The breakdown by compliance routes was as follows:

  • ISO 50001 – 0.9%
  • DECs – 5.3%
  • Green Deal – 0.2%
  • Audits -90%
  • De Minimus – 3.6%

Audits formed the main route to compliance; although ISO 50001 could become a popular option in the future.

EVORA predicts an increase in the take-up of ISO 50001, although significant time investment is required. This reflects the opportunities that energy management system frameworks present for target-setting and monitoring for continual improvement in the long-term.

How about transport?

This is often neglected since traditionally businesses have focused on health & safety when considering travel. Many opportunities exist including training, installation of tracking-systems, promotion of alternatives to travel including video conferencing and introduction of site-specific green travel plans. Focusing on transport could present new ways to achieve significant energy and cost reductions.

Please check out our Reflecting on ESOS: The Next Steps article for more on our reflections on ESOS and the next steps going forward.

For more information, Paul Sutcliffe will be speaking at the UK Green Building Council (UK-GBC) ESOS Showcase Event in London on the 15th of March. The link to the event can be found on the website: http://www.ukgbc.org/event/esos-showcase

Stay tuned for further updates on the energy efficiency taxation review budget on the 16th of March.

 

 

Health impacts of climate change on indoor environments

A report recently published in the journal Environment International highlights health risks associated with climate-induced change to indoor environments. The report explored four key consequences on indoor environments: overheating, reduced ventilation, indoor air quality (which may lead to the growth of pathogens) and biological contamination such as pest infestations or airborne infectious diseases. Climate change is expected to amplify existing health risks already associated with these categories. This is not very surprising and will only stretch the public health purse further if climate change is not tackled.

More information via Science Direct and the European Commission.

DECC launches Energy Innovation Consultation

A new consultation published by the Department of Energy and Climate Change invites the energy sector to contribute thoughts and ideas to encourage innovation across the sector.

The consultation is open until 11th February and asks the following three questions:

  • How can legislation and enforcement frameworks help support new technologies and business models to encourage growth?
  • How is new technology likely to shape the energy sector?
  • How can regulators better utilise new technologies to generate energy savings and reduce burdens on business?

The final Innovation Plan will be published in spring 2016.

More information via Business Green.